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Holiday Budget Survival Guide

Being mindful of your holiday budget goes a long way to relieving holiday stress.

The holidays are a joyous time full of family, friends, and merriment. But there's also an undercurrent of holiday stress in hosting parties, traveling, and of course, buying presents. Gift giving is an entrenched part of our holiday celebrations, and one's holiday survival often depends on navigating the fiscal waters safely.

The shopping season is what makes or breaks retailers for the year, and in order to get your wallets to open in their stores (or on their websites), November and December become an all out advertising and marketing blitz on the senses. Retailers target your eyes and ears with bright lights, huge "sale" signs, and commercials touting the newest electronics, the most affordable toys, and the nicest jewelry.

To avoid the huge holiday shopping hangover of January, you need to be mindful of what you purchase in December--and how you pay for it. Most holiday gifts are bought with credit, which delays the financial pain for a period of time, but also encourages consumers to shop even more, which in turn creates an even bigger financial headache when you finally get the bill.

Following is a list of tips to help your bottom line survive the holiday shopping season.

Cut Down (or Cut Out) the Gift Giving
This is the tip that will create the biggest financial flexibility, but also cause the most angst and possible embarrassment. However, as the country has now suffered through two straight recession shopping seasons, more and more people are relying on old family traditions like making gifts from arts and crafts, baking and cooking together, exchanging services like babysitting, or even recycling unused gifts. To some, this is an anathema, to others a godsend that has the dual effect of reducing budgets and bringing families closer together.

If this really isn't an option, then seriously consider the people to whom you're giving gifts this year. If belt tightening is in order for you, then think hard about acquaintances who can get a nice holiday card rather than a large gift. Or set up "secret Santa" gift exchanges amongst your friends and work so that everyone can reduce their gift giving budgets and have fun at the same time. The idea is to really think about how to reduce the amount of money you spend on gifts.

Create a Spending Plan
Once you've targeted the people to whom you'll be giving gifts, do an honest budget and distribute that money according to your wishes. It's important to do this before you purchase any gifts so that you aren't influenced by an item that's on sale but above your allotted amount for a person. Once you buy that item you raise the budget for everyone, because mentally it's difficult to reconcile getting dad a new set of golf clubs (that may be a great deal, but are above the budgeted amount) but sticking to a nice set of headphones for mom. Be smart and create a spending plan before you actually spend--your holiday survival may depend on it.

Track Your Spending
Once you've created a spending plan, it will be easier to track your spending because you can simply compare what you've spent against what you've budgeted. It's the holidays, and your budget will likely go over by a certain amount, but if you have your budget written, along with how much you've actually spent, your urges to add at the last minute or splurge on gifts will be lessened.

Use Cash or Debit Cards as Much as Possible
While most holiday shopping is done via credit, as stated, it delays the financial pain and therefore encourages you to buy more. Using cash or debit cards eliminates that urge because once you buy the gift, it's immediately out of your wallet or bank account.

If you use credit, try to pay it all or much of it at the end of the month when the bill comes. With the credit crunch and new credit card laws coming into effect, banks have increased interest rates and fees for using their credit cards. Paying the minimum balance on even a $500 bill with a relatively low 13% interest rate will take two years to pay off, and eventually cost you about $650. Not a bad investment for the bank--they get a 30% return on their investment--but it's a pretty raw deal for you, the consumer. If you use credit, be sure to pay more than the minimum so that you can pay off the bill quickly and save money on interest payments.

Start Shopping Early
Over one-third of the shopping this past season was done online. All the major retailers now offer Black Friday (the day after Thanksgiving, the "official" start of the holiday shopping season) sales online, which means that you don't even have to leave home to get your shopping done. It also means that you can start looking for potential gifts early and target certain gifts as priorities.

The old retail model was that stores would stock up on merchandise so that they wouldn't run out of popular items. This meant that the day after Christmas, the stores would essentially have clearance sales on those items. However, as the recession rolls onward, retailers have ordered less merchandise so that they aren't stuck with unsold merchandise that they have to sell at a loss. Whereas in years past, certain consumers could wait for post-Christmas sales to get the best deals, now the popular items are sold out early in the season. So during holiday season, the new rule has become, if you see it at a good price and you like it, buy it--because you may not see it again.

Starting your shopping early also allows you to pick from the best merchandise available. Since most people will be thinking like you, they'll be out looking for the best deals on the widest selection of products. Wait till too late and you'll be picking from a small selection at the worst prices.

Shop Online
Because online shopping costs less for retailers that don't have brick and mortar storefronts (they don't have to pay for store employees, retail space, etc.), the savings are often passed down to you. Many online retailers will offer free ground shipping if you purchase early enough (yet another reason to start shopping early), and others may not even charge sales tax, depending on where the business is located.

Even brick and mortar stores offer great deals online and offer free shipping. Additionally, search websites that post discount codes or offer links to special online sales. You can save big money by doing just an hour of searching online.

Note, however, that the exception to the credit card rule lies with online sales. Credit cards offer the best protection for fraudulent or misrepresented sales. Additionally, because of the potential for online scams such as phishing and ID theft, using your credit card offers a level of protection a debit card cannot. Just remember to pay off the bill in full at the end of the month, or send off a check to the credit card company immediately after a purchase. 

Return Policies and Receipts
Store return policies have become much more strict over the years. Sometimes the window to return is very small and the store may make you jump through a few hoops first, to discourage people from returning items. Many stores have extra help in their returns section for the holidays, but even then, you should expect big lines at the returns counter. If you're unsure of a store's return policy, find out before you buy or while checking out. There's nothing worse than buying an ugly sweater that you can't return.

Needless to say, always keep your holiday receipts. In addition to returns, some stores offer price matching where if you buy a product and see it advertised at a lower price by another store, you can get a refund of the difference.

See Return Policies and Refunds for more information. 

Do Your Homework
In addition to shopping online, do internet searches for similar items and read reviews of products, if applicable. By doing so, you'll learn about the features that are most important to you or the recipient of the gift and can be smart about buying the right gift at the best price.

For example, if you want to buy an HDTV for your parents, you'll want to know what screen size is best for their living room, what type of screen is easiest on their eyes, and which TVs have the best speakers, so that they don't have to buy a sounds system that they don't really want or need. You can search online, and then go to a physical retail location to personally check out the quality of the screen and listen to the speakers.

Next Steps
Contact a qualified debt and bankruptcy attorney to find out your options
for navigating the best path forward.
(e.g., Chicago, IL or 60611)

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